UK says independent Scotland would lose the pound

Scotland would not be able to use the pound as its currency if it voted to break from the United Kingdom later this year, the British minister for Scotland said yesterday (6 February), issuing the government's strongest warning on the subject yet.

As Scots prepare to vote on whether to stay in the UK on 18 September, Scottish nationalists are basing their post-independence economic plans on a currency union with Britain.

But the British government, which wants the Scottish public to vote against independence, has already said such a plan would be nearly unworkable.

"The only way for Scotland to be sure of keeping the UK pound as it is now is to stay in the United Kingdom … No one should vote for an independent Scotland on the basis that they will get to keep the UK pound sterling," he added.

Opinion polls show that around 42% of Scots plan to vote against independence and 29% in favour.

The British government says Scotland and the rest of Britain are better off together, while Scottish nationalists wants to end what they say are decades of economic mismanagement by London.

Much of the political debate over the referendum has so far focused on finance and currency-sharing arrangements.

Scottish nationalists say they could keep using the pound by ceding control of monetary policy to the Bank of England and agreeing broad fiscal guidelines. They believe both sides would benefit from a currency union.

"Scotland is the UK's second largest trading market. It would be absurd for Westminster (the British parliament) to stand in the way of protecting the benefits this brings to businesses and consumers in the rest of the UK," said Stewart Hosie, the Scottish National Party's treasury spokesman.

But Carmichael was one of several lawmakers who spoke in a debate on the future of Scotland to say that any currency-sharing arrangement would be unworkable.

Tough rules

Andrew Tyrie, head of an influential parliamentary committee that scrutinises financial policy, said any monetary union would need to be accompanied by a common fiscal policy to prevent a repeat of problems seen in the euro zone.

The euro zone currency bloc has undergone four years of political and financial turmoil after doubts about the ability of weaker states to repay their debts led to big losses for banks and meant several countries needed to be bailed out.

"A British monetary union would need something dramatically tougher than euro zone rules," Tyrie said. "So tough that on both sides of the border, if fully explained, I'm confident our respective electorates would not want it."

Tyrie said he doubted that Scots, if they did vote for independence, would relish the prospect of a British government picking over Scottish spending plans.

But in the absence of such a joint fiscal policy, British voters would resent bailing out Scottish banks if investors lost faith in Scotland's ability to balance its books, he said.

Tyrie urged both sides to rule out a currency union well in advance of the referendum, to allow Scots to make a fair choice.

"Not to do so, it seems to me, would be to deceive our respective electorates that there is some third way, some relatively painless option, enabling the Scots to imagine that they are fully in control of their own affairs and the rest of the UK to avoid large contingent obligations," he said.

Background

Scotland and the UK signed an agreement on 15 October 2012 opening the way for a referendum on independence in the autumn 2014.

Scotland has been a nation within the United Kingdom since the UK was founded in 1707. The current Scottish Parliament was founded in 1999 as part of the process of devolution within the UK, which created regional assemblies in Scotland, Wales and Northern Ireland, to give the regions greater autonomy. The Scottish Parliament has control over some parts of policy, such as education and health, and can create its own laws on these issues.

The Scottish National Party (SNP), which leads the devolved government, is campaigning for Scottish independence. The SNP claims that Scotland needs a stronger voice in Europe and beyond to properly represent its social, political and economic interests.

Scottish ministers complain that issues important to them are often sidelined by London.

Comments

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The right thing is to get rid of the Sterrling Pound and join the Euro currency

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Anonymous

07/02/2014 13:22

Leaving the pound behind would be the right thing to do. Every pound created by the Bank of England (a private company owned by Sir Evelyn De Rothschild) is lent to the government at 10% interest. This interest has to be paid back of course (even though it was never earned) and that’s the root cause of why UK is so poor.

Scotland doesn’t need to go independent and then wear this financial ball and chain; it can print its own Pound (it already does)but without this interest.

That simple step will enable Scotland to prosper at long last.

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Anonymous

08/02/2014 01:32

@ Edward Ramsbottom

The Bank of England has been an independent public organisation since 1998, wholly owned by the Treasury Solicitor on behalf of the government (UK), with independence in setting monetary policy. I think you are a bit out of touch.

I do agree, that if Scotland is to go Independent, then it makes no sense to then hand back economic control to the Bank of England. However, we need Mr Salmond to stop telling fairy tales, own up to the truth on this and many other things and let the people then decide.

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Anonymous

08/02/2014 14:24

They can unilaterally adopt euro, like Montenegro did. Every currency is better than the doomed pound.

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Anonymous

08/02/2014 16:00

Well if it’s not to be the UKIP pound sign floating on the saltyre I am quite sure the Scots will do the right thing and set up their own arrangements. After all with all the posturing going on, it is a fundamental axiom of money throughout history that it is the Banks that run this side of life. If the Bank of England won’t do it then a Scottish Central Bank could do it. If in the last analysis UKIP were to win at the EU Parliamentary elections in England, I as a Scot would have an extra inducement… Read more »

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Anonymous

09/02/2014 00:05

“They can unilaterally adopt Euro, like Montenegro did. Every currency is better than the doomed pound.” They could use any currency unilaterally, even the US dollar. However, statements like that show a delightful touch of economic naivety. Put simply they need a Central Bank to back them up so that they can borrow at decent rates. That is why the UK treasury would be reluctant without control of Scotlands spend, borrowing and control over Scottish based Banks. Scotland can easily solve this by having their own Central Bank and Currency, the Scottish Pound or whatever. The Scottish Government knows this… Read more »

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Anonymous

09/02/2014 00:10

“Euro is not a viable currency – and it’s not run by governments”

Correct, it is run by Government – Germany.

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Anonymous

09/02/2014 20:36

“They can unilaterally adopt euro, like Montenegro did. Every currency is better than the doomed pound.” Yes, Scotland can adopt any currency it wants – but that’s not the same as a currency union. A country is free to adopt a currency for use – there are actually a few small countries like Ecuador that actually use the US dollar. But this means they do not actually have a currency of their own – they are using the currency of a foreign country. You may stop to think for a moment exactly why countries, even ones with massive problems and… Read more »

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Anonymous

12/02/2014 22:47

Well now a currency union is not the same as the banking system operating in a commercial sense. Ever since the times Assiento when Genoan bankers ran the the affairs of state of the Spanish empire, the functions of banks have been distinct from the machinery of the state. Clearly even in more modern times Banks have been separate from the states in which they operated. Who says the refusal of the UK government to allow Scottish banks to operate in the financial markets is realistic? Judging by the mess of the UK banking system and the extreme remedy of… Read more »

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Anonymous

12/02/2014 23:32

Richard,
All you say is valid. For more on this there is a very good article in the Spectator by Alex Massie:

James is a very British name. Your English is, well, a tad continental.

Are you really uk-sceptik?

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Anonymous

13/02/2014 10:57

James, two points: If what you say is true, why are the Scottish National Party so desperat to keep the pound in a currency union with the rest of the UK? More importantly, there is no chance whatever of their joining the euro if the rest of the UK refuses a currency union. For one thing, the Nationalists have made it clear they want to retain the UK opt-out (whether they will be able to is a different matter, since President Barroso has indicated they will be a new member state and thus committed to eventual euro membership) However, leaving… Read more »

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Anonymous

13/02/2014 11:31

A Scottish bank paying one percent better interest on my savings would get my support. This is likely to draw in huge amounts of investment money from all over UK – I think it would be a winner.

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Anonymous

13/02/2014 11:46

To anyone from outside Scotland who’s reading this with any degree of faith in what George Osborne is saying: be warned; this is just pre-referendum posturing. Nobody with any sense believes a word the UK Govt says any more. They’ve said that we wouldn’t be in the EU, not in NATO, there would be border fences along the Tweed… I’ve even seen someone suggest that there would be no credit cards in an independent Scotland. From a Scottish perspective, we’re getting used to the daily barrage of antipathy from our ‘friends’ in Whitehall but people are beginning to take these… Read more »

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Anonymous

13/02/2014 11:59

Thanks Richard, that’s a clear and informed statement you have made. Unfortunately it does not account for the political developments that a possible Scottish independence would unleash. Post war history shows how concepts of nationalism have in Europe at least and in general been subsumed into a morphing of sovereignties and expedience towards pragmatic outcomes. A good friend of mine expressed it well “the Euro should have collapsed but these politicians are keeping it alive against all logic” as he picked up the point that nowadays political will has a strong counterbalance to the free reign of markets. When you… Read more »

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Anonymous

13/02/2014 12:38

“A Scottish bank paying one percent better interest on my savings would get my support. This is likely to draw in huge amounts of investment money from all over UK – I think it would be a winner.” Why would Scottish banks pay higher interest? The only reason they would do that is if they either needed to attract capital in the form of deposits – which is unlikely – or scotland had it’s own currency, with it’s own central bank that had in turn raised interest rates substantially above those set by the Bank of England for the rUK.… Read more »

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Anonymous

13/02/2014 16:51

I don’t think Scotland should keep the pound, if they go bankrupt, we would have to bail them out.

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Anonymous

13/02/2014 17:21

Time to ask Mr Salmond what he has in mind for plan ‘B’. Any idiot would have seen this one coming and had a back up plan. Has he been wrong footed because like the rest of us he probably did not expect it until much nearer the referendum? No doubt while he works out what to do, his attack dogs will be accusing George Osborne, Danny Alexander and Ed Balls of bulling Perhaps he may want to go back to his well rehearsed statement; Independence within the EU, Oh hang on that’s gone belly up as well! Maybe the… Read more »

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Anonymous

13/02/2014 22:51

Hang on…was Osborn briefed by a dispassionate advisor in the Treasury or was he the mouthpiece of a determined official aware of the impact of Independence on his and colleagues jobs? I think we need to be told. Perhaps with all the expertise available in the Financial circles in Edinburg it will not be long before that English fox gets shot.

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Anonymous

13/02/2014 23:10

What possible effect could Scottish independence have on the employment status of senior officials at the Treasury? THe only likely effect is the loss of jobs in Scotland, given that a disproportionately high level of public sector employment within the UK is located within Scotland. Upon independence, you own national public services will require far fewer staff, so all the jobs within Scotland related to activities that actually take place in the UK will relocate to the UK. By “financial expertise in Edinburgh shooting the English fox”, I presume the SNP is now frenetically attempting to find a credible voice… Read more »

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Anonymous

13/02/2014 23:22

Thanks, now I know that it’s all about loss of London’s political influence and not about the impossibility of continued use of the pund esterling…after a possible Aye vote. I suppose the Scots are entitled to vote as they please, and heaping spurious monetary concerns worthy of Tarot card games on them will not be appreciated by the rest of us living in a potentially diminished England (in or out of Europe?).
Has UKIP also added its support to Tory, Labour and Lib Dem concerns? Should we worry?

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Anonymous

13/02/2014 23:47

@ JJ

“Look at the bookmakers. Their odds tell us it’s near-certain that Scotland will still use the pound after independence. In other words: in the real world no-one believes a word Osborne says…”

IF, Scotland votes for Independence you may be right. Scotland could use the Pound, Euro or Dollar.
You will not however, have the Bank of England as lender of last resort.

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Anonymous

14/02/2014 10:51

James, to be honest, you’re talking nonsense. First, you’re pinning your hopes on what people at bookmakers are making bets on – when the three political parties, one or more of which will govern the rUK after a possible separation, have all said otherwise? Conservatives, Labour the and LibDems have all said – if they are governing the rUK, they will not agree to a currency union with Scotland. And Mr Salmond and Ms Sturgeon may ASSERT otherwise all they like – a currency union means both sides have to agree to it, and the rUK has said quite clearly… Read more »

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Anonymous

15/02/2014 14:45

I am surprised that there has been no mention of the Irish example post the 1921 Treaty. The Free State and then the Republic continued to use sterling post independence for more than 50 years. However, as I understand it there was no formal currency union and Ireland had to accept whatever interest rates were set in London. Moreover, the BOE did not stand behind Irish banks.

Given that the rUK will not accept a currency union it sounds as though, post independence, Scotland will face higher long term borrowing costs and a constrained fiscal situation.

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Anonymous

15/02/2014 15:54

@ A Londoner

A very good example indeed. In fact if I am right the Irish economy was not great until they joined the EU and got loads of money thrown at them. They then joined the Euro and the fallout from that when the financial crisis started is exactly what the UK treasury wants to avoid happening to the £pound.

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Anonymous

15/02/2014 17:46

Mor eprecisely, after independence in 1922 Irish banks continued to issue notes that were effectively backed by the bank of England; not until 1926 did Ireland begin to issue it’s own coinage (but not notes), that were known as tokens. This was followed in 1927 by the establishment of the Irish Currency Commission that issued notes that coul dbe swapped for pound sterling notes; in essence, the Irish pound, known as the punt, came into existance. However, it was pegged to the British sterling for fifty years following that – Ireland did not even establish a central bank until 1937.… Read more »

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Anonymous

15/02/2014 20:47

Concerning borrowing rates at more advantageous rates (and provided you can pay the principal back) notwistanding currency exchange risks, business trading in the single market still would finf in a Scottish situation advantage in borrowing in Euro particularly if they are dependent as most Scots high value goods on that market.

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Anonymous

15/02/2014 22:27

Quite. However, Scotland’s borrowing rates are going to be more profoundly affected by the market view of the risk of lending to them. Scotland as a new nation would have no credit history – it certainly could not count on inheriting the UK’s long history of never defaulting on debt. Of course, should scotland elect to default on it;s share of UK debt upon separation, this would be catastrophic (it is the precise reason why Greece did not simply walk out of the euro, recreate the drachma and default). Bankrupts simply don;t get loans, except from sharks who charge punitive… Read more »

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Anonymous

16/02/2014 11:46

Government borrowing is one thing. The world works on commercial transactions. Were I a fine quality single Malt Whiskey producer and sought finance for expanding sales I am sure I could raise finance at most advantageous rates whether in the UK, Ireland or Scotland. If the Estonians and Latvians can do it so can Scotland. Seen from Luxemburg the situation is extremely clear, tax regimes and permissive company law is good for business…and for the state.

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Anonymous

16/02/2014 12:15

Goverment borrowing is much more important though. I keep on seeing this sort of comment “ah but we have whiskey/oil/wind” On a different note, yet another wheel comes off the SNP’s case today: speaking on the Andre Marr show today, President Barrosso said: “I want to be absolutely clear…in case there is a new country, a new state, coming out of a current member state it will have to apply. “And – is very important – accession to the European Union will have to be approved by all other member states of the European Union. Of course it will be… Read more »

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Anonymous

16/02/2014 13:44

It seems to me that the Nats cannot lose. Even in the likely event of a No vote they will have succeeded in reinforcing Scottish identity. I confess that (apart from the weather) I am jealous of the Scots. English and Scots submerged their identities into the Empire but they have managed to revive their’s whilst we English have not. I wonder if our grumpiness towards the EU is a product of an English identity crisis. The Scots seemed to have moved beyond Empire but we English seem stuck – we cannot revive our former Imperial glory but seem unable… Read more »

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Anonymous

16/02/2014 14:47

“Andre Marr (sic) show today, President Barrosso (sic)” would say that would they not? With Westminster on the ropes who blames calling even Barroso to help?

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Anonymous

16/02/2014 14:52

A Londoner – you have hit the nail on the head!

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Anonymous

16/02/2014 19:57

Was Barroso telling the Scots that there is no way that they could join the EU as a separate country, because all current members would need to approve, and he had already been told that the UK would not approve? So Scotland has to wait until UKIP forces the UK to withdraw before it can join! What irony!

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Anonymous

16/02/2014 20:39

IanS

Actually, the UK will want badly the membership of Scotland in the EU. Because it’s the only way the UK and independent Scotland can have open borders. Don’t forget: every EU member must have true borders (custom-house etc) with non-members.

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Anonymous

18/02/2014 00:54

@ A Londoner, Not really sure that I follow your logic or reasoning. As a scot I can assure you we have never be shy of pushing or recognising our identity! I honestly doubt if anyone could argue that. As a Londoner I am assuming that you may you may be suffering an identity crisis because of the mixed population from all over the world and from all of the UK. London is a huge melting pot, that’s why I left it. However in my travels around the UK, the North East, Yorkshire, Midlands and West Country I find that… Read more »

The idea that London have somehow enlisted President Barrosa is utterly laughable. It would for one thing a complete violation of his oath of office, which is political neutrality and to serve the interests of the whole European Union, not the interests of any one state (including the one he originates from). In any case, even assuming that was not so, why on Earth would Mr Barroso submit to London’s wishes? Mr Barroso made it clear, he is not interfering in the right of the Scottish people to decide their future, nor is he interfering in the political debate by… Read more »

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Anonymous

22/02/2014 09:54

Needed deposit guarantee! Request thanks to deposit insurance your rental deposit at the bank back! Apply for a rent deposit guarantee and you can use your already deposited bail money are freely available. This gives you unlimited access to your cash, which otherwise is blocked on the rent deposit.

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Anonymous

23/02/2014 10:12

The latest Cameron pronouncements say in effect “You can’t have the pound; but we will have had YOUR oil” Is such attitude not a challenge for more Scots voters to vote for independence?
Or is Camereron ‘nae haverin’?

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Anonymous

23/02/2014 13:18

James, you don’t half talk nonsense sometimes. In regard of the pound, the three parties one or more of which will be in government at the time of any possible negotiations will be taking place have simple stated that the rest of the Uk will NOT agree to a currency union with an independent Scotland. A currency union cannot happen unless both sides agree to it. Scotland cannot decide on the rest of the UK’s behalf, it is a matter which both equally sovereign countries have to agree to create. The rUk won’t for reasons which have been more than… Read more »

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Anonymous

23/02/2014 14:33

It seems to me that the Scots Nats are not really factoring in the adverse reaction which will occur in the rUK in the event of a Yes vote. At the moment, my impression is that English public opinion is well disposed towards Scotland. However, in the event of a Yes vote I suspect this will change. I think that will be particularly so since the No side appear to have the strongest economic arguments. a) The need to keep the pound but without a formal currency union is going to raise borrowing costs, b) North Sea oil is a… Read more »

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Anonymous

02/03/2014 01:40

@ A Londoner,

I would largely agree with you. If there is a YES vote come September, it will not end well. The divorce will be acrimonious.

The only real bargaining chip that the SNP have is around Coulport and Faslane.

The sad thing is that if Independence were to come about and after, say 5 years, things were not going well. the young, mobile, skilled and educated will be off, including SNP supporters.

London will love it as the financial sector in Scotland is about twelve times Scotland’s GDP. With no lender of last resort they will be off.